Brooke’s Note: The story of The Buckingham Family of Financial Services is exciting itself and forms a nexus of the tales of two major RIA players: Dimensional Fund Advisors and Focus Financial. If Adam Birenbaum succeeds, these companies stand to ride a giant wave with him. What do I think of the [very] young CEO-in-waiting? I was impressed with his irrepressible confidence during our interview. But I may be biased. As a Red Sox fan, I was once skeptical of Theo Epstein right up until the final out of the 2004 World Series. He was 30 at the time.

Careful what you ask for. Bert Schweizer III put him in the mailroom of the giant St. Louis, Mo.-based RIA.

Birenbaum seized on that opening to start a meteoric rise through the company. On Monday Buckingham’s co-founder and chairman announced that he’s promoting Birenbaum to CEO of Buckingham Asset Management, the RIA arm of the company. This makes the 32-year-old Birenbaum one of the leaders of a $12 billion operation that he aims to turn into the first $100 billion RIA in the next decade.

“We’re going to bring a commercial element to an ideological business,” he says. “We’re going to build and scale so we can truly compete against the largest of the wirehouses.”

Birenbaum believes Buckingham is best-positioned to capitalize on American investors who increasingly realize that passive investing is the future. The Buckingham belief is investing in index and passively managed funds provides better results for clients.

Some in the industry say Birenbaum and Buckingham shouldn’t be underestimated.

Not hollow

“This is not hollow ambition,” says Rudy Adolf, CEO of Focus Financial, a New York aggregator that owns a significant portion of Buckingham,. “It’s founded in a very disciplined management approach.”

The hiring took managerial courage that could pay off in a number of ways, says Irv Rothenberg, principal of Wealth Management Consultants, a Santa Rosa, Calif.-based RIA, which manages $400 million. Buckingham reported its purchase of the firm this week.

“I think it’s a gutsy move to turn the reins over to somebody younger. I’ve been impressed with his energy and knowledge,” he says. “My younger colleagues see [Birenbaum’s hiring] as a message” that the acquiring firm is in touch with modern approaches to building a business.

Birenbaum officially takes the helm in January at a company that has already made its mark on the RIA business. The Buckingham Family of Financial Services, founded by 1994, has a total of $12 billion in AUM and AUA. Those assets are divided between Buckingham Asset Management, which manages $3 billion of assets and BAM Advisor Services, founded in 1997, which has $9 billion of AUA from 130 CPA firms that use its turnkey asset management program. Of its $12 billion, it has $1 billion in 401(k) assets.

The Buckingham Family of Financial Services has 95 employees. Buckingham Asset Management has 29 employees including 17 advisors, six associate advisors and six fixed income advisors [the company does not use DFA for fixed income]. The rest of the employees work for the TAMP or BAM Risk Management, which was founded in 2001.

Spectacular growth

Buckingham’s spectacular growth kicked off in 2002 at time when it had $1.9 billion of AUM — $500 million with Buckingham Asset Management and another $1.4 billion in the TAMP. The tech bubble bursting set off a rush to invest in passive funds and Buckingham’s collective AUM hit $5 billion in 2005.

By the end of 2008, asset levels stood at $7.8 billion, including $6.3 billion in its TAMP and $1.5 billion in Buckingham. The wobbly markets of the past two years helped spark the next surge to $12 billion.

Birenbaum’s meteoric rise from doing menial work at the company mirrors its fast growth. He started out filing paperwork in May 2002. “I memorized our entire client list that summer.”

His most recent roles at Buckingham: principal, assistant to the chairman, chief compliance officer and legal counsel have whetted his appetite to take a fast-grower and make it explosive. Before joining Buckingham, he was an investment banker with El Paso Corp. and earned his juris doctorate degree.

Birenbaum says that under his aegis the company will stick to its passive investing roots – but move beyond passive marketing and business development strategies.

“Now we’re going to do the things that other firms do to grow,” he says.

The list of areas where Buckingham intends to make deliberate efforts to grow begins with a plan to step up efforts to win the assets of endowments, foundations and other institutional accounts.

$60-million increments

“We just got into that business a year ago and we’ve brought in several hundred million. We’re proposing on $60 million here and $80 million there. We think that business is about to blow open.”

Another area of concentration is retirement assets, though Birenbaum did not elaborate on this strategy.

These efforts to grow can succeed both because of what the company has built and because of the business plan it is setting in motion, according to David Butler, the Austin, Texas-based global director of financial advisor services for Dimensional Fund Advisors.

“They built an incredible foundation for the business; the infrastructure and support they bring to advisors [using the TAMP] is really tremendous,” he says. “And Adam strikes me as smart and creative and brings alot of energy to the equation.”

Birenbaum also plans to spearhead efforts to acquire RIAs around the United States that share Buckingham’s philosophy of using passive investments. It recently brought aboard an advisor local to St. Louis who is amending her approach toward the Buckingham approach.

Buckinghams’s aggressive new approach is also evident in the purchase of Wealth Management Consultants his company announced on Monday. Rothenberg was a founder of Buckingham Advisor Services who was cashed out after Focus Financial, the big New York-based aggregator bought a big stake in 2007. He says that Wealth Management Consultant’s growth had stagnated of late, and he believes Buckingham can reinvigorate it. He plans to stay with the company.

Ironically, Rothenberg got a big referral from Buckingham on the very first day of their new relationship. “Show the money and there it is,” he quipped about an Austin, Texas-based client that discovered they had a relative in Santa Rosa in need of wealth management.

Milestone deal

Buckingham’s WMC purchase is a milestone for both the acquirer and its parent company, Focus Financial.

“Clearly, this is about more than a $400-million sub-acquisition,”’ says Rudy Adolf, CEO of Focus.

The deal more than doubles the size of the kind of sub-deals that Focus has closed in the past and it indicates the kind of growth-by-big-increments that Buckingham is capable of. It’s also a harbinger of even larger sub-acquisitions by Focus, he adds.

“We can do significantly larger [sub-acquired] deals,” he says.

Buckingham would not be able to pursue its acquisition strategy with such abandon without the counsel and financial backing of Focus, according to Birenbaum.

Along with Focus, DFA also has been a key partner. But Buckingham casts a wider product net on behalf of clients.

“We don’t like to position ourselves as a DFA shop; we like to position ourselves as wealth managers” he says. Birenbaum adds: “We continually scour the landscape” and look closely at investments from companies like Vanguard Group and Bridgeway Capital Management.

“We need to prove it every day that we’re the right investment vehicle for our clients,” Butler of DFA says.

Bridgeway uses a passive approach for some funds but its managers will intervene at times, according to its website “A company may be excluded from the portfolio if Bridgeway believes it is on its way to bankruptcy,” it reads.

DFA will also override a strict indexing approach by, for instance, by not buying a stock the day it joins the index or sell it the day it is removed. Demand for the shares can be unnaturally high or low on those days creating adverse conditions for a trade.